Volume 67, Issue I

The following articles were published in the first issue of the Aussenwirtschaft 2016.

Hosting multinationals: Economic and fiscal implications.
Peter Egger and Marko Koethenbuerger
Abstract
Switzerland is a prime location for both domestically owned as well as foreign-owned multinational enterprises (MNEs). In this paper, we review the literature on MNE activity with respect to its main fundamental (non-policy) drivers, the non-fiscal consequences of MNEs for various economic aggregates, and the fiscal implications associated with the operation of foreign affiliate networks. In particular, the paper puts emphasis on the fiscal implications of hosting MNEs and their relation to the current tax environment in Switzerland. Comment by Christian Keuschnigg

Knife edge? Switzerland as a base for multinational companies as relations worsen with the European Union.
Simon J. Evenett
Abstract
During the past seven years, Swiss-EU economic relations have deteriorated, with the vote by the Swiss people in 2014 in favor of immigration limits bringing matters to a head. Using the latest available data on the financial performance of US multinationals operating across Europe, this paper estimates how large the revenue and cost shocks that could follow a rupture of Swiss-EU relations would need to be to alter return on investment calculations enough so as to possibly induce multinationals to relocate to other European locations. Of Switzerland’s immediate neighbors, only Austria poses a potential threat in this regard. Excluding Europe’s periphery, returns on US assets invested in the Netherlands fall just short of those in Switzerland. Comment by Reto Foellmi

The stickiness of national competitiveness: Implications for Switzerland and beyond.
Stephan Mumenthaler and Barbara von Schnurbein
Abstract
This paper postulates that a country’s competitiveness is sticky, i.e. it does not react immediately to changes in underlying framework conditions. The causes of this stickiness can be categorized along three dimensions. First, there is a delay between policy actions and their impact on competitiveness (“pipeline effect”). Second, visible reactions of firms to changes in framework conditions lag behind insofar as firms react relatively quickly on the margin, i.e. with new projects, but react only slowly with existing activities due to sunk-cost effects (“overflow effect”). Third, as politics reacts only to visible changes in competitiveness, and given that these actions again need time to take effect, reactions are systematically delayed. Policymaking should take into account all three of these dimensions of stickiness to prevent major damage to a country’s competitiveness. This is especially relevant in a small open economy like Switzerland, as the relatively small size of the home market compared to exports amplifies the effect of changes in framework conditions on competitiveness. We therefore conclude by presenting policy measures to help anticipate and dissipate the negative effects of stickiness.

Hosting multinationals: Economic and fiscal implications. Peter Egger and Marko KoethenbuergerAbstract
Switzerland is a prime location for both domestically owned as well as foreign-owned multinational enterprises (MNEs). In this paper, we review the literature on MNE activity with respect to its main fundamental (non-policy) drivers, the non-fiscal consequences of MNEs for various economic aggregates, and the fiscal implications associated with the operation of foreign affiliate networks. In particular, the paper puts emphasis on the fiscal implications of hosting MNEs and their relation to the current tax environment in Switzerland. Comment by Christian Keuschnigg

Knife edge? Switzerland as a base for multinational companies as relations worsen with the European Union. Simon J. EvenettAbstract
During the past seven years, Swiss-EU economic relations have deteriorated, with the vote by the Swiss people in 2014 in favor of immigration limits bringing matters to a head. Using the latest available data on the financial performance of US multinationals operating across Europe, this paper estimates how large the revenue and cost shocks that could follow a rupture of Swiss-EU relations would need to be to alter return on investment calculations enough so as to possibly induce multinationals to relocate to other European locations. Of Switzerland’s immediate neighbors, only Austria poses a potential threat in this regard. Excluding Europe’s periphery, returns on US assets invested in the Netherlands fall just short of those in Switzerland. Comment by Reto Foellmi

The stickiness of national competitiveness: Implications for Switzerland and beyond. Stephan Mumenthaler and Barbara von SchnurbeinAbstract
This paper postulates that a country’s competitiveness is sticky, i.e. it does not react immediately to changes in underlying framework conditions. The causes of this stickiness can be categorized along three dimensions. First, there is a delay between policy actions and their impact on competitiveness (“pipeline effect”). Second, visible reactions of firms to changes in framework conditions lag behind insofar as firms react relatively quickly on the margin, i.e. with new projects, but react only slowly with existing activities due to sunk-cost effects (“overflow effect”). Third, as politics reacts only to visible changes in competitiveness, and given that these actions again need time to take effect, reactions are systematically delayed. Policymaking should take into account all three of these dimensions of stickiness to prevent major damage to a country’s competitiveness. This is especially relevant in a small open economy like Switzerland, as the relatively small size of the home market compared to exports amplifies the effect of changes in framework conditions on competitiveness. We therefore conclude by presenting policy measures to help anticipate and dissipate the negative effects of stickiness